Community Property Agreement: What Is It?
A Community Property Agreement is a type of marital property agreement that is commonly used in community property states. It allows a couple to convert their separate property into community property (half owned by each spouse). The property can then be divided at divorce in half or left to the surviving spouse at death, thereby avoiding probate.
The CPA works like this: At the couple’s death, the couple’s community property is half owned by the couple and ½ owned by the survivor. However, their separate property owned at the date of the CPA is owned by the survivor. Real property owned at the date of the CPA but acquired after the execution of the CPA is owned by the survivor. By contrast, real property owned before the date of the CPA but acquired after the execution of the CPA is owned by the community estate (both spouses).
If a couple purchased real property during marriage, executed a CPA, sold the property and purchased new property, the buyer would hold title to the new property as tenants in common with one owning a ½ interest and the other owning a ½ interest. In essence , the property is held by a tenancy in common, and if the surviving spouse wants to transfer his or her interest, probate is required. To avoid the probate, each spouse must execute a will in favor of each other devising their probateable assets to each other. In essence, they have done basically the same thing that a CPA would do but without the CPA.
CPAs are sometimes criticized because they don’t have any tax advantages over Joint Tenancy property. They don’t avoid probate on each spouse’s half. The only real advantage is to convert separate income earned after the date of CPA into community income to be included in the spouse’s ½ estate at death. At its best, the CPA is a lazy man’s way of avoiding the need to do a will.
In Texas, a CPA is worded and executed by each spouse and is a contract between spouses to place all property owned, or later acquired, in joint names with the right of survivorship (Texas Family Code Section 3.101(b)). Other states do CPA by specific statute.
Template for Creating a Community Property Agreement
A properly drafted community property agreement template will contain several key components. First, identification of the property will be needed. This can be granted by way of a description of all the property such as "All of the community property owned by the parties to this agreement without regard to when the property was acquired." Or alternatively it can identify each specific item of community property, such as "House located at 123 Fake St., Los Angeles, California, Moto X motorcycle, and two John Hancock stock funds." A third option is a catchall for community property that is specifically acquired after the execution of the agreement. This typically includes: "All other community property acquired by either or both of the parties from the date of execution of this agreement until the death of either party." If you with to exclude other community property that may be acquired during the life of your community property agreement, then you may not need the catchall clause mentioned above.
Second, the community property agreement will need to include the agreement itself. The agreement essentially states that the parties intend the property identified as community property to remain community property regardless of whether it is held in joint tenancy. The agreement will usually contain the type of property being held, such as "all real property, including any interest in real property held either jointly or alone" or simply "any real or personal property held in either name." Third, the community property agreement must contain a provision addressing after-acquired property. These provisions essentially determine if property acquired after marriage is classified as community or separate property. Further, it must address if the property will be held as tenants in common. Texas law compels courts to classify property acquired during marriage as community property unless the property was acquired by devise, descent, or gift. The community property agreement can serve as an exception to this rule so long as the property is acquired after the execution of the community property agreement and it clearly states that the property acquired during marriage shall be considered community.
The Advantages of Creating a Community Property Agreement
Community Property Agreement templates may have a somewhat negative connotation, even though they are so useful and helpful, and make the task of creating a community property agreement so much easier. Many people think that a template is a sign of a lack of care and perhaps even laziness in drafting up the agreement. However, the truth is that an agreement template is only a starting point, and it’s absolutely a good idea to import it into a word processing program and then *customize* it to fit your particular circumstances and needs.
In what way is a community property agreement template helpful? Well, the process of just getting started with a blank page can often be so daunting that people don’t know where to begin and therefore don’t pay any attention to the task at all. This in turn allows the State you live in to claim your property for itself because you did not draft up a legally binding agreement to keep ownership of your property. In my opinion, that is tragic.
The process of actually going through the template document, seeing the different provisions, and then considering them in the light of your own individual needs will often make it much more likely for you to get the agreement done, instead of basically giving up and resigning yourself to not doing anything at all. The truth is that it is often so difficult to do something that there is a natural tendency to put it off and do nothing – while inaction is even worse than doing *something*, any future problems you face from your inaction may be even worse than having any property at all.
Reading the different provisions in the template will often remind a busy attorney or a busy married person to remember provisions they might otherwise have forgotten about. The different provisions in a Community Property Agreement template may include information about which spouse is responsible for certain debts, and which spouse will receive benefits from their respective pensions should there be a divorce between them.
Sometimes the solution to a problem is so simple, such as a properly drafted community property agreement, that we overlook it – but the fact is that the law needs to have certain paperwork and documents filed when it comes to property owned by married people. If those documents are not properly completed and filed, the State or another entity may seize the property as "unowned" property when there is a divorce or death. Here at Template.net you can find a community property agreement template. Our agreement templates can be downloaded for free in Microsoft Word or PDF formats, and any information that you have entered on the document is saved with the file – allowing it to be printed and filed quickly and easily.
Drafting A Community Property Agreement
To draft a Community Property Agreement, a couple needs to customize the generic agreement available from several free online websites or legal self-help books. It is possible to write your own agreement if desired, but I have never seen a drafted agreement that did not make errors or omit some important provisions. The non-lawyer would be well served to get the drafted agreement reviewed by a knowledgeable family lawyer. In a community property state, either spouse can terminate the agreement at any time upon giving 30 days written notice. (In the case of a military soldier, spouse cannot terminate until the end of a 90 day period from the date of the notice). The agreement needs to be signed by both spouses, notarized, and then filed with the county recorder’s office where the agreement was entered in order to make it effective.
In the case of one well known free site, the couple is directed to the default provisions in the event that the generic agreement cannot be completed. The many exceptions provided are illustrative of why you need to have a knowledgeable lawyer draft the agreement. Making matters worse, the restrictive provisions are so poorly written that they could also be customized to meet unique circumstances. For example, the restrictions on gifts and debts could be so severely written that they could prevent using credit cards.
Avoiding Common Mistakes
One of the most common mistakes we see with Community Property Agreement Templates is being too vague. I can’t tell you how many consults we do where people have paid a couple hundred bucks to a Legal Zoom type company and come in with 10 pages of gibberish but no direction. These templates are worthless. What you need is an agreement that is drafted towards your specific need. For example, a married couple who is not yet divorced may need to make changes in each section of the template depending on their need. If this contract is for a second marriage, there will be sections that must be added or deleted.
Another mistake is thinking that once you sign this contract , that is all the work you will ever have to do. Wrong. You should update your contract at least every two years. Why? Because the state legislature makes changes to the estate codes on a regular basis. In addition, you should be looking at changes from banks and how they are dealing with joint accounts and passing them on to survivors. Another reason why you might have to change your agreement is when you have a birth, or a death or even when you move. For instance, if you buy a house, you should make sure that the title reflects the new changes in your community property. Which leads to doing this type of agreement with competent estate planning lawyers who can help you understand your obligations. You don’t know what you don’t know and the advice of someone knowledgeable can save you thousands of dollars.
When You Should Update a Community Property Agreement
Your Community Property Agreement may need to be reviewed, and even revised, under several circumstances. For instance, if you ever find yourself no longer married to the person to whom you entered the agreement with, either due to the death of your spouse or a divorce, then you will likely want to revisit the agreement you signed. From a general standpoint, any time your marital status changes following the entering of a Community Property Agreement with both your and your spouse’s consent, it becomes advisable to contact a qualified professional and discuss whether you should enter into a new property agreement.
You may also want to actively look over your Community Property Agreement after a significant increase or decrease in the value of the assets covered within the agreement results in a meaningful change to the full value of your community property.
Changes in state law may also encourage you to revisit and even revise your Community Property Agreement. While there are not many regulations in this area, one recent development in 2022 updates the statute of limitations for community property agreements, which primarily prevents a court from voiding an agreement that is meted out following a divorce. While the statute has both reduced and eliminated the statute of limitation for the vast majority of these agreements, the fact is that it is always important to stay updated on changes to state and federal laws that could impact how your Family Law Agreement is treated.
Primarily though, a Community Property Agreement should only be entered, and re-entered, based on your situation and its changing nature. Because there are only two ways to "undo" a Community Property Agreement after you sign it (i.e. death or divorce) and because there are far more complex issues to address within these agreements than you might realize, it often pays to consult with an experienced professional before making any decisions.
Legal Matters and State Rules
In most U.S. jurisdictions, the status of property titles and deeds has little to do with the legal status of property under transmission and succession law. To understand concepts like community property, it is important to remember that the co-ownership of real estate may not determine the transmission of wealth at death, and is in fact quite different for some persons than for others.
For example, Minnesota and Wisconsin generally disregard ownership of bank accounts on a transferable-on-death basis or joint-tenancy basis (with rights of survivorship) for purposes of determining amounts subject to estate tax. On the other hand, for determining decedent’s eligibility to bequeath property, Ohio requires a general interspousal gift listing statute. Without such a statute, Ohio law looks to the actual amount of gift to determine eligibility to make a dispositive interspousal transfer.
Legal issues concerning dispensation of wealth come down to a comparison of statutes. If generally applicable statutes have ambiguous terms, customary interpretations broadening some rules may apply, but no reliability can be placed on any particular approach. For example, even though in many states, a marriage dissolution proceeding terminates co-ownership state community property, the duration of co-ownership varies.
Under Ohio law, for example, co-ownership terminates upon filing of the dissolution of marriage petition which limits any deductible gift to one-half of the proceeds from the sale, which does not mean co-ownership ends immediately. Likewise, under Minnesota law, co-ownership of real property does not terminate until one spouse dies. This general rule may be modified by a due process requirement that the application of the rule must not cause an unfair deprivation of property under whatever circumstances apply to a given case.
Community property law is infrequently used in the United States and almost entirely limited to eight states: California, Texas, Alaska, Louisiana, New Mexico, Arizona, Washington and Wisconsin. Hawaii has abolished community property and replaced it with a modified version of a partnership agreement . Any use of the concept outside of these states is a rare exception, especially in Ohio.
Under Ohio law, a legal presumption renders a spouse owning half of any property acquired by the other spouse during the marriage as having a beneficial interest therein. Even if wrong, Ohio courts enforce the presumption, and will not accept a contrary statement in court. A non-title holding spouse, for example, cannot testify that the other spouse owns the property solely. This feature of Ohio law is a rare exception.
The applicability of a community property marital regime under Ohio law appears not to be totally resolved. In 1996, the Ohio Supreme Court in Janovic Co. v. City of Lyndhurst said it rejects the argument that community property exists in Ohio. The court further stated that Ohio’s common law supports joint tenancies with rights of survivorship and joint bank accounts. The intention of creating a gift need be only a wild guess as to what applies in Ohio.
Court opinions also indicate there is a common law rule that a spouse may not bequeath less than one-half of his or her net estate without the consent of the other spouse. The basic principle underlying the rule is that a spouse may not deprive the other spouse of his or her interest in property acquired during the marriage. There are no Ohio cases prior to the 1970s that cite the one-half rule. However, the rule is inconsistent with the marital regime otherwise in force in Ohio.
Judicial construction of the verbose obsolete Ohio inheritance statutes has resulted in considerable overlap between probate law and marital property law. In 1953, the Ohio Supreme Court in In re Estate of May held that a decedent has terms because of the surviving spouse’s dower right and elective share. In 1983, in Sykes v. Cleveland Trust Co. the Ohio Supreme Court enlarged the terms of the elective share to include a marital deduction. Subsequently, in In the Matter of the Estate of Henry Hershberger the Ohio Supreme Court approved a marshaling plan combining the concepts without opining on the considerable overlap.